On CNBC’s Mad Money, Jim Cramer talked about the trend of individual investors jumping into the market to get a piece of this rally. He notes that trading volume through brokerages such as Charles Schwab (SCHW), E-Trade (ETFC) and TD Ameritrade (AMTD) has grown considerably during August, which is normally associated with the lazy summer days of lackluster volume. As the Wall Street Journal points out, traditionally trading volume falls by about 10% in August from July, but this year there was a 7.7% increase.
“A lot of the trading volume is in small, speculative financial stocks. You know some days in August trading in just Citigroup, Bank of America, Fannie, and Freddie made up more than 15% to 20% of market value, and people love trading in and out of these names now. I can understand why, considering all the money they’re making. So we need a play on that play. We need the picks and pans maker for the gold rush. That’s right. We need Knight. We see retail investors coming back in the volumes, and we know part of the reason for that is because of the market’s rise…
{NITE is} The leading source of off-exchange liquidity in U.S. equities. It has greater share than any. Remember, you don’t turn to Goldman Sachs for retail, you don’t necessarily go to even Morgan Stanley, you may not even be working with — Smith Barney maybe, but institutionally, you’re not trading with them. Bear Stearns is gone, so is it leaves Knight Capital in enviable position when it comes to the New York Stock Exchange, which seems to continue to lose market share by the month. Again, not knocking the stock just encouraging as much competition, which includes now, NITE, Knight Capital Group typically handles over 5 million trades a day, mostly for retail clients.
As market makers, NITE internalizes the flow. Again, Wall Street gibberish that I will bust here. It means they take the other side of the trade for the best again, this is a good thing. It gives retail investors great prices. Their average daily volume was 22 billion in August, up 8% from July. Average daily share price was $15.6 billion. That’s up a phenomenal 53% over July, driven by increased small stock trading. The small-time investors trading Citi and Fannie and Freddie and AIG before the split they’re taking their business to Knight. Its Nasdaq market share rose from 17% in July to 20.5% in that’s up huge from a 10.3% share in August 2008. Listed market share rose 12.8% in July to 15% in August up from 8% in August of 2008. I mean, this is a company that’s voraciously devouring market share in the New York Stock Exchange and Nasdaq will not like what I say. I welcome them on the show, but I have to point out the share gains here.” – CNBC’s Mad Money 9/16/2009
Cramer makes some interesting points about recent trends in trading volume. 
There is no doubt that the online brokerages, which are heavily influenced by retail investors, are seeing increased business from investors hoping to ride the market’s rally. Also, Knight Capital (NITE) is showing impressive market share gains, especially compared to a year ago. However, Cramer’s call on NITE seems to be geared more towards the day traders themselves looking for momentum than a long term investor. The stock is up by 32% from a year ago, and receives a Fairly Valued rating based on Ockham’s methodology. The improved fundamentals have been recognized by the market and have resulted in substantial outperformance.
We will be interested to see if Knight Capital gets the “Cramer Effect” after he spent a lot of time talking about the company, largely speaking to retail investors. When he spends that much airtime on a company, it is all but guaranteed that volume will be higher than normal the next trading day. Please take a look at the chart to the right to see all of the stocks that were mentioned on last nights Mad Money, for the context of these mentions please visit our Mad Money recap page.
